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Via my father Robert Levine, a New York Times article bemoaning the negative effect of investors on innovation. Funny thing is, it's mostly about how patents discourage research - but never a thought to patent reform.

Comments

The Myth that Patents are a Monopoly

A patent gives the holder the right to exclude others from making, using or selling the invention. 35 USC 154. It does not give the holder the right to make, use or sell their invention. A monopoly is an exclusive right to a market, such as an electric utility company. An electric utility company has the exclusive right to sell electricity in a certain territory. Since a patent does not even given the holder the right to sell their invention, let alone an exclusive right to a market, it is clearly not a monopoly.

When a person describes a patent as a monopoly to be consistent they should also state that they have a monopoly over their car or over their house. In fact, they have more rights in their car and house than a patent gives the inventor over their invention, since you have a right to use and sell your car or house. A patent does not give these rights to an inventor over his invention. All invention are built upon existing elements (conservation of matter) and if the elements that the invention uses are patented, then the inventor will not have the right to sell their invention without a license.

Some economists argue that a patent is designed to give the holder monopoly power. Those economists who are consistent also state that all property rights give some monopoly power. The property rights are monopolies thesis shows how confused economic thought is on this subject. The only logically consistent definition of a monopoly is an exclusive right to a market.

People who suggest a patent is a monopoly are not being intellectually honest and perpetuating a myth to advance a political agenda.

For more information on patents and innovation see www.hallingblog.com.

In defining a monopoly as "an exclusive right to a market," you are following an older school of economics, which I think was associated with Joe Bain and various textbook writers. I remember being taught this as a freshman in microeconomics and not questioning it.
An exclusive right--or rather grant--to sell to a market, can only be granted by the State. This brings us to patents, which are legal devices--not to sell to a market, as you rightly point out--but to prevent competititors from producing something that is patented.

Patents (and this is true for all forms of "intellectual property") create monopoly rents, which are reaped by patentees (and their rent seeking legal enablers). If you take a more dynamic view of markets, rather than view them as I was taught, then you see that patents are in fact a form of monopoly.

Your statement that any type of property should be viewed as a monopoly by those of us who see patents as a monopoly is incorrect. LeBron James has a monopoly on LeBron James's basketball services, just as you have a monopoly over your computer, desk, and pen, but to call these monopolies empties the term of any real world meaning. Murray N. Rothbard pointed this out in his book Man, Economy, and State. In his book Power and Market: Government and the Economy, he pointed out that a patent is a form of triangular intervention--between the State, a patentee, and any other property owner who is prevented from doing certain things with his own property, such as copying it.

The key point here is the creation of monopoly rents, which accrue to patentees. The older school of economic thought tended to overlook this in the 1950s and 1960s. It wasn't until some pathbreaking work on rent seeking in the early 1970s by Anne Kreuger, and some contributions of the public choice school (James Buchanan and Gordon Tulloch) that this began to change, and that competition started to be seen as a more dynamic process.

Michele Boldrin and David K. Levine are just two of the intellectual heirs of this work. That's how innovation works, whether in products or in ideas.

One small correction. Patents create an opportunity for monopoly rents, they cannot guarantee them. If you enter a new, patented vacuum cleaner into the vacuum cleaner market, you can only gain a monopoly rent if the market will permit you to do so. If your improvement (or your marketing) is not sufficient over prior versions to gain a monopoly rents, you might well find that you need to reduce your price over the existing mechanisms to be able to sell them, a sort of reverse monopoly rent.

We should never forget that patents guarantee nothing, only an opportunity. The rest is up to the market place.

Interesting article. StemCell files for a patent in 1995, getting a patent in 1999. Dr. Philip Schwartz provides stem cells using a similar or the same technique for six years, which would have been about 8 years after StemCell applied for their patent, and about 4 years after they got the patent. Perhaps Dr. Schwartz should have spent less time developing a technique and more time reading patents - he could have saved himself a lot of trouble.